Under full rationality a labor income tax and a corresponding employer’s contribution are equivalent. Without full rationality this equivalence is no longer obvious, however. If people react differently to the two this has direct impact on policy making and consequences for optimal taxation theory and political economics. This paper examines how people react to these duties in a real-effort laboratory experiment. We study their differential effects on labor supply, subjective well-being, exerted effort and preferences concerning the size of the public sector. To measure the latter in the laboratory we develop a novel approach to elicit these preferences in an incentive compatible manner. Our results show that people react differently to the distinct duties. Our findings suggest that labor supply is higher under an income tax while subjective well-being is higher under an employer’s contribution. Our findings also suggest that an employer’s contribution induces preferences for a larger public sector.